Canadian Economy Beats Expectations; US Dollar Stability Expected

In the fourth quarter, Canada's economy expanded at an annualized rate of 1.0%, surpassing expectations and alleviating pressure on the central bank to cut interest rates. The growth exceeded the Bank of Canada's (BoC) projection of zero growth and analysts' median forecast of 0.8%. January's flash estimate suggested a 0.4% gain in GDP from December.

The BoC has maintained its key overnight rate at a 22-year high of 5% for the last four meetings, aiming to address underlying inflation triggered by shelter costs, food prices, and wages. Despite this, Canada outperformed G7 counterparts Japan and the UK, which both entered a recession at the end of the previous year.

Quarterly growth was driven by increased exports and a decrease in imports, with a decline in business investment acting as a moderating factor. Final domestic demand, comprising expenditures on final consumption and gross fixed capital formation, decreased by 0.2% in the fourth quarter. Outside of 2020, real GDP in 2023 saw its slowest growth since 2016.

The current GDP data did not alter forecasts for a first interest rate cut in June, and the BoC is expected to maintain rates at its upcoming policy announcement. Although high rates have contributed to cooling inflation from 8.1% in June 2022 to 2.9% in January, they have impeded economic growth. Markets anticipate an 80% chance of a rate cut in June, with a 25-basis-point cut fully priced in for July.

Mixed data since the BoC's last announcement includes January job growth surpassing expectations and inflation cooling faster than anticipated. In January, Statscan's advance estimate highlighted increases in educational services and health care, offset by decreases in mining, quarrying, oil and gas extraction, and transportation and warehousing.

Canadian manufacturing exhibited signs of stabilization in February, with employment rising and a slower downturn in output and new orders. Conversely, wholesale trade likely fell 0.6% in January, primarily due to a notable decline in building materials and supplies.

Internationally, the dollar fell on weak U.S. economic data. U.S. manufacturing contracted in February, with factory employment dropping to a seven-month low. Construction spending unexpectedly declined in January.

Looking ahead, Friday's U.S. jobs report is crucial for investors gauging the Federal Reserve's potential interest rate cut, currently expected in June. The report will follow testimony from Fed Chair Jerome Powell, who is likely to emphasize a cautious approach given recent economic strength and persistent price pressures. Consequently, it is anticipated that the Canadian dollar will maintain a relatively stable position, hovering in the upper range during this period.

Data for Technical Analysis (1H) CFD USD/CAD

Resistance : 1.3565, 1.3567, 1.3571

Support : 1.3557, 1.3555, 1.3551

1H Outlook

Source: Investing.com

Buy/Long 1 If the support at the price range 1.3547 - 1.3557 is touched, but the support at 1.3557 cannot be broken, the TP may be set around 1.3566 and the SL around 1.3542, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 1.3565 - 1.3575, TP may be set around 1.3582 and SL around 1.3552, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 1.3565 - 1.3575 is touched, but the resistance 1.3565 cannot be broken, the TP may be set around 1.3556 and the SL around 1.3580, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 1.3547 - 1.3557, TP may be set around 1.3540 and SL around 1.3570, or up to the risk appetite.       

Pivot Points Mar 4, 2024 03:22AM GMT